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Trading: Primarily Energy but also a little Equities, Fixed Income, Metals, U308 and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,059 since Dec 2013
Thanks Given: 4,410
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While they are highly inversely correlated, the relationship actually isn't linear.
In Bond Math, two of the most common/important concepts are 'Convexity' and 'Duration'. Convexity addresses the non-linear relationship between price and yield. Duration addresses how maturity effects the the relationship between price and yield. DV01 is a standardized measure of how much price is affected by a change in yield. In theory DV01 captures both the convexity and duration. but in reality the convexity is so small for a small change in yield, that it primarily captures the duration risk. The reason DV01 occasionally changes though is because of convexity.
Obviously different futures, reference different maturity bonds. What people may not realize is that their is also a referenced coupons which for the 10yr note is 6%. The price of the ZN 10 year Treasury future, is the price of a Treasury Note, yielding 6% with a maturity between 6.5 and 10 years in the future. So in reality ZN actually behaves more like a 7 year bond than a 10 year bond. CME added a "Ultra 10 Year US Treasury Note" TN the price of which is the price of a Treasury Note, yielding 6% with a maturity between 9.5 and 10 years in the future. While not as big as ZN, NT does trade 200,000 contracts a day.
TLDR: The answer to the question involves calculating the implied yield of an approximately 7 year to expiry 6% Treasury Bond given the futures price.
Unfortunately calculating implied yield from price, is a lot more complicated than calculating price from yield but I'll let you solve that problem.
Look at this price action lately in Nat Gas, an NG Micro is needed badly! QG mini trades in 5 cent increments, is not very liquid, and a 1 tick slippage means 15 cents to cross the spread vs NG!
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals, U308 and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,059 since Dec 2013
Thanks Given: 4,410
Thanks Received: 10,226
Urhhh No. Your off by a decimal.
NG is 10,000 MMBtu and has a $0.001 tick which is $10
QG is 2,500 MMBtu and has a $0.005 tick which is $12.50
All the ICE Natural Gas Products are either 2500 MMBtu per day or per month, so this product probably isn't going away or being replace by a micro but I could be wrong.
It used to be extremely liquid, mostly 1 maybe 2 ticks wide, but with these massive moves (1237 tick range in NG today!) and 10 tick wide bid-asks in the main NG contract I wouldn't be surprised if the market makers (read: High Frequency Arbitrageurs) have all pulled back (at least to sniper only). Will check tomorrow.
CME did announce Micro Heating Oil (MHO) and Micro Gasoline (or Reformulated Blendstock to be accurate) (MRB) last month. I'd be surprised if they trade though, QH and QU the eMini's have zero volume. Like most of the new Micros they will also be very expensive to trade in relation to the full size contracts.
Thanks, Micro Crude also overtook Mini Crude, which was active, so there is hope Micro RB and HO do also. Good to know on the QG decimal being half cents, but actually trading it lately, it is not useful for anything except long term positions and hedging, a micro would be much better still, hope that comes as well.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals, U308 and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,059 since Dec 2013
Thanks Given: 4,410
Thanks Received: 10,226
The 5x tick size on QG (Natgas eMini) is a killer for retail and a gift for arbitrageurs. QM (Crude eMini) isn't quite so bad at 2.5x (but still a gift for arbitrageurs), but the contract being just half the size still makes it a very big contract. I think that large contract size is a reason for so much of the QM liquidity moving to MCL so quickly.
CL is 1000 barrels, with tick $0.01 = $10
QM is 500 barrels, with tick $0.025 = $12.50
MCL is 100 barrels, with tick $0.01 = $1
I've been testing with both TN and ZF as the spread in 5yr gets pretty silly sometimes. The CME tool gives you stats for both the cheapest to deliver and the on the run issues. However, the data you see through the tools on the CME website is delayed. So you have to figure out how things have changed since the last snapshot you got.
So presumably just using the DV01 provided by the CME tools is not sophisticated enough. The further away from the snapshot price you get the less accurate it will be. Certainly not accurate to within a tenth of a basis point at least.